Service Tax Voluntary Compliance Scheme (VCES) 2013 – PROPOSED

Let’s not bother by the changes that Budget brings in every financial year and let’s accept that we will follow it in true spirit and will use our right to take benefit out of it. One of such is Service Tax Voluntary Compliance Encouragement Scheme, 2013, for beginners to correct their stand and move ahead by concentrating on their core business rather than keeping the headache of service tax compliance issues.

The scheme is

One time relief from interest, penalty and prosecution

For businesses being non-fillers (tax collected but not paid) and stop-filers (tax not collected but not filled returns)

Relief period or tax dues allowed under relief is Oct. 2007 to Dec. 2012

Relief will be granted, if the taxes due are paid within prescribed time and rules.

Let’s make most out of the difficulties and come out of it forever; obviously, one shall attempt to honor the service tax liability, if one intends to be true and fair, leaving past issues.

Technical considerations

Applicable from?** Union Budget 2013-14 vide Finance Bill 2013 has proposed VCES 2013. However, the scheme will come into force from the date of enactment of the Finance Act 2013 i.e. after the President’s consent. Accordingly, the declarant may file an application under this scheme for waiver of interest and penalty once the Finance Act comes into force.

However, since the scheme has not been enacted yet, the scheme may be subject to certain changes prior to its enactment, and further the central government has been empowered to make rules to make the scheme operational.

Eligibility Criteria: The person seeking the relief is called declarant under the scheme. He is eligible for an amount due or payable for the period Oct. 2007 to Dec. 2012 but not paid as on or before 01/03/2013. The tax due amount shall be undisclosed in the sense no returns should have been filed with disclosure of his true tax liability.

If any return has been filed between the eligible period (say Oct 07 to Mar 08) and tax has been disclosed (whether paid in full or in part) then only the tax amount which is disclosed (i.e. for Oct 07 to Mar 08) is ineligible. The period for which no return has been filed (i.e. Apr 08 to Dec 12) and tax has not been disclosed shall be eligible.

Moreover, the tax due amount in respect of which no notice or an order of determination under service tax legislation should have been issued or made before 01/03/2013 to be eligible for scheme. If a notice or an order of determination has been issued on one issue for any period (say Oct 07 to Mar 08) then on the same issue the declarant cannot file declaration for that period and not even for subsequent period (i.e. Apr 08 to Dec 12). However, if the issue is not similar, the declaration can be filed for subsequent period.

Just like notice or order issued, where an inquiry or investigation or an audit has been initiated in respect of an eligible period then the declarant is not eligible to opt the scheme.

Procedure: The declarant is required to file a declaration in form prescribed on or before the 31st day of December, 2013 to Assistant Commissioner as notified by the Commissioner (called the designated authority here) and the tax shall be paid as follows:

(a) 1st instalment – 50% of the tax dues – on or before 31/12/13

(b) 2nd instalment – balance – on or before 30/06/14.

(c) If not paid on or before 31/12/14, shall be paid with interest after 01/07/14.

On every payment, declarant is required to submit and intimate proof of payment to designated authority along with copy of acknowledgement of acceptance of VCES application by designated authority initially provided.

On discharge of full payment of due tax, the designated authority shall issue an acknowledgement of such dues in prescribed form. This acknowledgement of discharge of tax makes declarant eligible to be free from any authority or court relating to the period covered by the declaration which has powers to reopen the case.

The declarant shall get immunity from penalty, interest or any other proceeding under the service tax provisions otherwise applicable.

Other important considerations: Once paid under the scheme, the tax or any amount is not refundable.

If declarant fails to pay the tax as agreed, then interest shall be levied.

If commissioner believes the declaration was substantially false, the show cause notice can be issued within one year from the date of declaration requiring declarant to show cause why he should not pay the tax dues not paid or short-paid. Meaning by notice can be issued on or before the 31st day of December, 2014.

The VCES scheme is certainly beneficial to those who are hiding in the house. However, schemes like VCES certainly hurts regular tax payers giving no respect to tax paid regularly or even paid interest and penalties at the time tax has been paid late. The scheme certainly shows that the tax has been eaten more in the past (especially from regular tax payers) than what collecting authority can digest. The unfortunate is the regular tax payers have to knock the doors of court for any disagreements whereas those who hide in the house are offered voluntary compliance scheme.